Why is Zip Co down -35% on Thursday? It’s complicated

Zip Co (ASX:ZIP) has seen a slaughterhouse session on Thursday. Its shares are down nearly -40% and the company’s seen $275 million worth of shares trade hands – most of that flowing out of the company’s registry, not into it. What’s going on?

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The market hasn’t liked ZIP’s half-year earnings, but that in itself is a little hard to comprehend. By all measures, the report isn’t terrible.

Record pre-tax earnings of $124.3M sees that metric jump +85% vs pcp. Operating margins are nearly 19%; $8.4B worth of transactions were carried out using Zip in the period, and transactions increased on this time last year. It’s not like the company’s about to go bankrupt. And yet, the price action on Thursday.

The first thing to note is that this earnings season has been particularly fierce. Or at least, investors have been, if those companies do not meet analyst expectations that are widely disseminated before earnings reports are released (assuming you’re a paying client, or you know somebody generous who is).

And in this case, Zip did miss some earnings expectations that were out there before reporting. So in that way, a sell-off wouldn’t have been surprising. Nick Scali got scalped last week, and Goodman Group was down -8% on Thursday, too, with its half-year report similarly not living up to hope.

But that doesn’t explain the full story for Zip, as far as I can see it – a decline of -37% is quite outsized compared to whatever pain Zip may be having. Was there something buried deep within the report?

Well, the company’s bad debt increased, but only by a pip. And seeing as we’re talking about a BNPL company, you’d expect there to be a fairly resilient investor mindset, considering it’s fairly obvious pay-in-4 solutions appeal to riskier consumers.

So some investors might have jumped ship seeing that slight increase, which could be compounding the effect of the earnings miss, but even then, it’s unlikely to have been a massive factor for many people. That a BNPL provider would incur bad debt is like saying water is wet, after all.

There are other considerations. ZIP’s business in Australia and New Zealand appears to be no longer where the momentum is: The company’s activities in the United States are on the way up and generating more cash; that could be suggesting to some that its Australian penetration has hit its peak.

That would assume that there’s nowhere else to go, really, in terms of defying estimates and delivering mind-blowing results at the next earnings report, so some could be moving on to something else. There’s also the fact that with Klarna’s IPO being a much-touted event last year, there could be a perception that if ZIP’s main core business is going to become the US, that there will be much harder competition.

After all, BNPL is a largely Australian invention. We basically exported Afterpay to the U.S., and that was years ago. U.S. BNPL usage is on the way up, and so Zip isn’t necessarily entering that market with an innovative edge or any kind of unique proposition.

Those to me stand out as the most obvious concerns in Zip’s report, and obviously, the nature of the steep decline is a reinforcing loop – stop losses are being triggered, algorithmic programs are reacting in kind, and then there’s good old investor panic.

Interestingly, for a fintech in CY26, the company’s results only used the term “AI” once. Maybe that was the problem.

ZIP last traded at $1.76/sh today.

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